Business executives’ views about Covid and inflation
If you’re a business executive trying to balance elements of the covid/inflation equation to map a course for the future, you could be interested in what your counterparts globally think about this.
A recent survey shows business leaders still believe COVID-19 and its variants will dominate threats to their corporate futures this year – although inflation and its inherent dangers is rapidly gaining ground.
More than half of the 917 CEOs who responded to the international survey conducted by business research group Conference Board said they expected price pressures, shown in a similar survey about 12 months ago to be “a low-level worry”, to now be of considerable concern, at least until the middle of next year.
This is because of the expected flow-on to Australia of what’s happening in the US where the Labour Department reports inflation finished last year at its highest level since 1982.
Business threats and geography
The effects of the two immediate major threats to corporate endeavour, Covid and inflation, depend significantly on geography.
The Conference Board survey revealed that for European CEOs, inflation was their main concern. They ranked Covid tenth, well below their worry about what business regulators have in store for them.
In the US, although inflation is running at the highest level in four decades, business executives’ concern about this is overshadowed by their worry about labour shortages during 2022. Third in their line of concerns is supply chain disruption, and Covid is fourth.
Yet CEOs in China and Japan see Covid as having the dominant negative effect on business throughout the year, and it is this level of concern throughout Asia that has helped push the pandemic as the major current worry of business leaders globally – which is followed by rising inflation and labour shortages.
The Conference Board’s chief economist Dana Petersen says disparity on these issues is partly explained by policy reactions to the pandemic. Asian countries are more likely to continue trying to stop the virus spreading by shutdowns, whereas Europe and the US are attempting to stay open for business while using policies involving vaccines, testing, and masks, to hold the pandemic in check.
Given the extent to which manufacturing contributes to China’s economy, and therefore because so many hundreds of millions of people can’t work from home, it’s hardly surprising Covid chaos tops business leaders’ worries.
Whereas in America where service industries play such an important role in its booming economy, and where the virus is under reasonable control, it is shortage of labour that has, according to the survey, become the primary cause of business angst.
Australian businesses well placed
While many Australian businesses continue to suffer the effects of skilled and unskilled labour shortages and are concerned that demands from the existing workforce for wage increases will fuel inflation, many CEOs will undoubtedly be relieved by Treasury’s forecast that a real wage rise of only 1% is expected between now and 2025.
And Federal Treasurer Josh Frydenberg’s budget update towards the end of last month forecast soaring business investment, a historically low unemployment rate, and a $106b revenue surge while household consumption continues to increase rapidly.
Compare this positive outlook with the recently released annual risk report from the World Economic Forum, which shows a significant increase in pessimism about global prospects with business leaders and executives worried about longer-term post-pandemic problems.
Many contributors to that report expect the next three years to be characterised by “consistent volatility and surprises”.
Should these eventuate, it’s Macks Advisory’s view that Australia is equipped to deal with them as well as any other country and undoubtedly better than most.
ANZ Private Banking head of investment strategy Lakshman Anantakrishnan expects inflationary pressures and reaction to them by central banks, to be the most telling for asset prices this year.
“Looking at Australia, we still expect the vaccine-led recovery, removal of border restrictions, and a combination of high levels of household savings and pent-up demand, to provide a strong backdrop for the domestic economy to solidify its rebound this year, once the Omicron situation subsides.”
Fixing the supply chain crisis
The supply chain problem causing so much havoc globally, will continue at least throughout this year unless governments do something to fix it – and it is fixable.
So says CEO of Ocean Network Express Jeremy Nixon. His company carries more than 6% of the world’s containerised freight, and he claims governments have postponed for too long the need to boost investment in the capacities of ports, railways, warehousing, and roads.
This, he says, can be aided and abetted by moving people away from parts of an economy where demand is lagging, to areas where demand is very strong and more critical to economic prosperity --although also very dependent on supply chains.
It is because sharp swings in consumer demand during the pandemic, disruptions to global shipping, and a decimated airline industry have created such a monumental crisis for supply chains, that such widespread attention is being directed towards negotiations due next month between shippers and operators of terminals along America’s west coast.
We’re informed these negotiations are not likely to go well, in which case Jeremy Nixon is likely to be right in his forecast that if they are unproductive and there are bad shipping jams in July, August and September, then supply chain problems for many countries, including Australia, will persist well into next year.
This is because the US west coast is the gateway for vast quantities of Asian goods that must be shipped to so many places around the world.
So, there they are, above, a few pointers as to where Australian businesses might sit in the global scheme of things during 2022, especially where this relates to the pandemic and inflation. While some won’t perhaps sit too comfortably, most will have as good, if not better opportunities to sit as comfortably, if not more comfortably, than comparable businesses anywhere else.
